AIRSHOW-UPDATE 2-Pratt sees deal for F-35 engines in next 30 days

Reuters Staff

5 Min Read

* Pratt sees savings of less than 10 pct on next F-35 engine

* F-35 engine sales seen exceeding $2 bln a year by 2018

By Andrea Shalal-Esa

PARIS, June 16 (Reuters) - Pratt & Whitney, a unit of United Technologies Corp, expects to reach an agreement with the Pentagon within the next 30 days on a contract for engines to power a sixth batch of F-35 fighter jets, Pratt President David Hess told Reuters.

Hess said negotiations were still under way with the U.S. Department of Defense but he expected the final price of the contract to reflect a cost reduction of less than 10 percent, continuing a trend seen in recent years. Pratt says the cost of the engine has declined 40 percent since the program began in 2001.

"We're making progress there. We've gotten an offer from the (Joint Program Office) and I expect we'll get that closed pretty quickly ... certainly within 30 days," Hess told Reuters in an interview ahead of the Paris air show.

Hess declined to give details on the projected value of the contract, which analysts expect will exceed $1 billion.

The company, which is the sole producer of engines for the single-seat F-35 fighter jet, which is built by Lockheed Martin Corp, finalized a $1 billion deal with the Pentagon in May for a fifth batch of 35 F135 engines.

The sixth engine contract currently being negotiated includes 39 engines, according to Pratt & Whitney.

Separate contract negotiations for the fifth batch of engines and jets dragged on for nearly a year, but Pentagon and industry officials were hopeful that agreements would be reached far sooner this time.

Hess said F-35 engine sales would account for more than 50 percent of the company's military engine revenue in the coming years, when production ramps up, reaching $2 billion by around 2018. Last year, he said, military engine revenue accounted for about $4 billion of Pratt's total revenue of $14 billion.

Hess said the F-35 Joint Strike Fighter, which is being developed by Lockheed for three U.S. military services and eight partner countries, was making good progress after several major restructurings in recent years.

He said no major issues or concerns were raised during a meeting last week of top Pentagon officials, industry executives and representatives from the eight partner countries: Britain, Canada, Australia, Netherlands, Italy, Turkey, Norway and Denmark.

"It was a very upbeat conference," Hess said, adding, "The international partners seem to have more confidence in the airplane."

He said potential orders from Singapore and South Korea would help expand production in coming years.

Both of those competitions looked promising in short-term, Hess said, noting that there could be additional customers for F-35 fighter jets in the Middle East in the future.

Israel has agreed to buy 19 F-35 jets, and was expected to order some 20 more.

Asked how the U.S. government could maintain Israel's "qualitative military edge" in the region if Washington sold F-35s to other Middle Eastern countries, Hess said such potential buyers could receive a "different configuration" of the jet. He gave no further details.

He said he was also confident that Canada would decide to stick with the F-35 program despite its recent discussions about having a new competition.

If the orders did shift to another company, Pratt & Whitney could decide to move some of the industrial base work it is currently doing in Canada, Hess said.

"We might reallocate the work elsewhere," he said, adding that reduced order volumes would likely trigger changes in Canada.

Hess said Pratt continued to work on reducing the production and operating costs of the new fighter jets. The company was waiting for a response from the Pentagon to its proposal to implement a fixed-price contract for maintenance of the engines in 2015, four years earlier than planned.

Bennett Croswell, head of Pratt's military engines business, told Reuters that a similar "performance-based logistics program" had saved an estimated $3 billion in costs on the engines that Pratt builds for the C-17 transport plane.

The Pentagon has not responded to requests for a comment about Pratt's proposal.

Air Force Lieutenant General Christopher Bodgan has talked about his plans to open the operation and sustainment aspect of the F-35 program to competition in the future, but no details have emerged about how the government will do that.

Hess said he was not worried about losing the lucrative operations and maintenance work on the F135 engine under some future competition. "We're used to competing," he said. "It's part of our culture."